SECURITIES AND EXCHANGE BOARD OF INDIA

Market Regulation Department

Supersession of the Committee of Calcutta Stock Exchange Association Ltd. (CSE)

SEBI has by Order issued under section 11 of the Securities Contracts (Regulation) Act, 1956, superseded the Committee of the Calcutta Stock Exchange Association Ltd., with effect from December 04, 2003 for a period of one year and has appointed Shri Tushar Kanti Das, IAS (Retd.) as the Administrator of the exchange to exercise and perform all the powers and duties of the Committee. 

SEBI conducted a special inspection of the CSE on May 2001 and advised the CSE to take immediate corrective action in the area of surveillance and risk management and advised that the responsibility be fixed on the concerned officials for deficiencies and violations brought out during the course of inspection. CSE was further advised to thoroughly revise the existing surveillance and risk management function as also overhaul and strengthen it and conduct an audit of the its systems by an independent group of computer system auditors to ensure that the system is secure and free from bugs. The report submitted by M/s Ernst & Young in October 2002 pointed out several deficiencies in the risk management system of the CSE which were not rectified by the CSE and also revealed serious shortcomings in the computer systems of the exchange. However, CSE failed to initiate the process of enquiry, fix responsibility and take appropriate action for the removal of deficiencies and also failed to initiate systems audit exercise for its surveillance systems.

Regarding the functioning of the Committee, there were reports of the public representative directors expressing their desire to resign/discontinue from the Committee, as they did not find a conducive environment to perform and carry out their duties at the Committee, due to the unwarranted interference and obstruction from the members. The quality of deliberations at Committee level was also found to have deteriorated considerably, often marked by irresponsible allegations and acrimonious and discourteous behavior on the part of some of the members. The Committee was also unable to discharge its duty towards the exchange and the investors, and appeared to lack the required focus and direction to improve the functioning of the exchange. The functioning of the Committee had created uncertainty and ambiguity even amongst the members of the Committee and insecurity amongst the investors, the situation warranted immediate action to stop the further deterioration of the functioning of the Committee. 

The Joint Parliamentary Committee had also observed that CSE had failed miserably in enforcing its own rules concerning the trading and carry forward limits, and that there had been deliberate failure to initiate steps for rectification of the collection of gross exposure margin by CSE, an absence for a medium for monitoring margin, dereliction of duties in the affairs of the exchange, errors in software system etc.

The financial condition of the exchange was also found to be very weak. The accounts for the year 2001-02 were not adopted by the CSE which made a net loss of Rs 4.10 crores in 2001-02 and continued to make further losses. A loss of Rs 2.02 crores was incurred by it in the 9 month period ending 31/12/2002. The CSE was also unable to recoup / replenish the shortfall/losses of its funds particularly, Settlement Guarantee Fund.

SEBI was of the opinion that the Committee of CSE has failed to manage and supervise the affairs of the exchange and failed to discharge its duties and now reached a stage where the Committee is unable to perform effectively and provide guidance and direction to CSE. Further, the activities of the exchange does not appear to be carried out with the provisions of SC(R) A and Rules made there under etc. 

In view of the above serious deficiencies, SEBI issued a notice under Section 11 of the Securities Contracts (Regulation) Act, 1956 to the Committee of the Calcutta Stock Exchange Association Ltd. as to why they should not be superseded. An opportunity of hearing was also given in October 2003. 

It was felt that the Committee of CSE is unable to perform effectively and provide guidance and direction to the CSE and if the present Committee of CSE is allowed to further continue, it may expose the securities market to systemic risks. Therefore, it is essential that immediate measures are adopted to ensure the safety and integrity of the stock exchange and ensure that the transactions on the exchange are carried out as per the regulatory framework and that the interests of the investors are not further jeopardized. Accordingly SEBI has superseded the Committee of Calcutta Stock Exchange Association Ltd.